Some housing bubble news from Wall Street and Washington. MarketWatch, "Bank of America Corp.'s third-quarter net income fell 32% from a year ago as trading losses, write-downs on a wide variety of loans and soaring reserves for likely future loan losses undermined profit, financial results showed Thursday. The bank put aside $2.03 billion for loan loss provisions, which are reserves the bank takes to cover loans that are likely to go bad."

"J.P. Morgan and Citibank, as well as several smaller regional banks, all boosted loan loss provisions dramatically this quarter. The banks also all said that they expect to see rising defaults in the consumer area, specifically with adjustable rate home equity loans."

"'The company also added reserves for its home equity and homebuilder loan portfolios in view of the impact of the weakened U.S. housing market,' was how Bank of America put it in its Thursday press release."

From Bloomberg. "Bank of America invested $2 billion in Countrywide Financial Corp., the biggest U.S. home lender, in August when the company was running short of cash. Bank of America's share of total U.S. mortgage originations climbed to 7.1 percent as of June 30 from 5.7 percent a year earlier, Credit Suisse Group analyst Moshe Orenbuch said."

Dow Jones Newswires. "Bank of America has about $ 2 billion in subprime mortgage loans in its warehouse awaiting securitization. Its pipeline of collateralized debt obligations stood slightly above $1 billion at Sept. 30, said Joe Price, Bank of America's chief financial officer."

"Bank of America said it is bracing for higher home-equity chargeoffs."

"Washington Mutual Inc., the largest U.S. savings and loan, said third-quarter profit fell 72 percent as the company wrote off bad home loans."

"CEO Kerry Killinger vowed in April to make WaMu's mortgage unit profitable by year-end, a target that he now says won't be met."

"'That is an unrealistic goal,' Killinger said in an interview today. 'Beginning in the third quarter, the whole environment changed to a severe correction, arguably some of the most difficult housing conditions we've seen in decades. The challenge for home loans grew much greater than what we could have seen in the second quarter.'"

"The home lending unit's loss widened to $348 million from $23 million a year earlier. Washington Mutual lost $222 million on the sale of home loans in the third quarter."

"The company plans to set aside as much as $2.9 billion this year to cover credit losses, up from a previous maximum of $1.7 billion. Washington Mutual may need to earmark as much as $1.3 billion in the fourth quarter to meet this level."

"Washington Mutual ranked 11th last year among subprime lenders, according to trade publication Inside Mortgage Finance."

The Seattle Times. "Nonperforming assets, including past-due home loans and foreclosures, grew to $5.45 billion at quarter's end, or 1.69 percent of all assets. A year earlier, by contrast, WaMu reported $2.4 billion in nonperforming assets, representing 0.69 percent of all assets."

"'I have never seen housing credit conditions change so significantly over such a short period of time, nor can I remember a period when there was less clarity about near-term housing and credit trends,' Chief Financial Officer Tom Casey said during the call."

"PMI Group Inc., the second-largest U.S. mortgage insurer, estimated a third-quarter loss, as borrowers' ability to repay their home loans 'significantly worsened' in September."

"The cost to bail out lenders is expected to increase fivefold from the same period a year earlier to about $350 million, the insurer said in a statement today. PMI also withdrew its earnings forecasts for the year."

"'PMI has the largest Florida exposure of the `big three' mortgage insurers,' said Seth Glasser, a credit analyst at Barclays Capital Inc. 'Loss severity in that state must be accelerating quickly.'"

"Credit-default swaps tied to PMI climbed 38 basis points to 195 basis points, a two-month high, according to CMA Datavision in London. The price of the contracts, used to speculate on the company's ability to repay its debt, means it costs $195,000 to protect $10 million in PMI bonds from default for five years."

"Write-offs of mortgages and related home equity loans led E-Trade Financial Corp. Wednesday to report a third quarter loss of $58 million. E-Trade took $187 million one-time provisions in the quarter to cover nonperforming loans. Part of those provisions included some $53 million in charge-offs."

"E-Trade also wrote down about $200 million in asset-backed securities."

"E-Trade had some $29.7 billion of mortgage loans that were considered high-quality on its balance sheet by quarter's end. 'A lot of people think that subprime loans is where the problems center,' said Jarrett Lilien, E-Trade's president. 'But that's not our problem. Our issue is that the value of high-quality loans is underperforming.'"

The Associated Press. "Logitech International SA, a maker of computer mice and other peripherals, has become the latest victim of the crisis in U.S. subprime mortgage."

"The company said Thursday that it will have to write off investments in credit securities of between US$55 million and US$75 million (between €39 million and €53 million) that resulted from 'unauthorized actions and misrepresentations to management of its treasurer, whose employment has been terminated.'"

From Reuters. "Anworth Mortgage Asset Corp said it realized a loss of about $14 million from the sale of about $904 million worth of mortgage-backed securities in the third quarter."

"The real-estate investment trust said its unit, Belvedere Trust, might not be able to obtain alternative financing to its repurchase agreement borrowings. Belvedere invests in 'jumbo' adjustable rate mortgages."

"Standard & Poor's lowered ratings on $23.4 billion of subprime and Alternative-A mortgage securities that were created as recently as June."

"S&P's action, in the same year as the securities were created, is its swiftest mass downgrade of mortgage bonds and the first time 2007 bonds have been cut by any company."

"'I would suspect that this is just the first downgrade,' said Joshua Rosner, co-author of a study last month that said ratings companies understate the risks of subprime mortgage bonds."

"AAA bonds from 2007 that were downgraded include bonds sold by Merrill Lynch & Co., Goldman Sachs Group Inc., Barclays Capital, Bear Stearns Cos. and RBS Greenwich Capital. The cuts were also on second-lien subprime loans, those given for second mortgages."

"While 2007 bonds don't have a long payment history, they are already demonstrating similar risks as 2006 securities, S&P said."

"The downgrades show S&P 'didn't have an accurate model for these types of securitized asset pools,' said John Coffee, Professor of Law at Columbia Law School."

"Coffee said this latest ratings cut proves S&P's methodology has been 'flawed for some time.'"

From Fortune. "'No one knows what anything is worth.' Lately I've heard that from lots of people. We're in one of those odd periods when things feel unmoored."

"Six months ago you knew, or at least you thought you knew, what your house would sell for. Now you probably don't. The bond market is quaking with fear about the credit crisis."

"The inventory of unsold and new homes is still extremely high, which suggests that a 'clearing price' -- a price that buyers and sellers agree upon -- has yet to be found."

"Now it turns out that Wall Street didn't understand its own mad, tangled creations either. A Bank of England official called the tests that financial firms used to measure the risk of these new products 'completely hopeless.'"

"In August a Morgan Stanley equity analyst recommended that investors buy the stock of insurer Ambac, which guarantees the payment on billions of dollars of bonds backed by subprime mortgages. A Morgan Stanley fixed-income trader promptly fired off an e-mail calling the recommendation 'absurd.'"

"'My analyst has no idea how to value' the securities Ambac guarantees, he wrote. 'No one in the world can put a definitive view on recovery levels' for some of these bonds."

"In 2004 even the Federal Reserve Bank of New York argued that a chunk of the increase in house prices was justified by the easing of lending standards. 'The price exists at the pleasure of the financing,' is how one hedge fund manager put it to me recently. 'That is true for stocks and houses and bonds and buyouts."

"But if the financing doesn't exist, or only maybe exists, then how do you determine price?"

"For asset-backed collateralised debt obligations, no one foresees either a beneficial outcome or a market recovery. 'There is no future for asset-backed CDOs based on subprime,' Brian McManus, managing director of Wachovia Securities. 'The CDO market has never gone back to any asset that has underperformed.'"

"Asked what the next asset class may be to take its place, he replied, 'It's unclear to me that there is a next asset.'"

From Business Week. "The megafund that the nation's three biggest banks are hoping will resuscitate a chunk of the credit markets was initially greeted with enthusiasm. But it isn't clear how the plan, hashed out in six weeks, will work—a weakness that could undercut its original intent."

"Part of the problem is the inherent contradictions in the proposal. For one thing, the superfund plans to buy only the best-rated securities from the SIVs, mainly those that haven't been tainted by subprime."

"So the SIVs still won't be able to unload the most troubled investments in their portfolio. It's a bit like trying to keep a mortally wounded patient alive while harvesting the good organs for transplant."

"Deborah A. Cunningham at Federated Investors of Pittsburgh, which was involved in the negotiations about the fund as an investor that lends money to SIVs...said the group that created the fund, which is known as the Master Liquidity Enhancement Conduit, is hoping that the fund’s mere creation will provide some comfort to investors."

"'The Treasury Department will consider this an extreme success,' she said, 'if this is never, ever funded — if it’s never needed.'"

"After a five-year boom in which housing sales climbed to record highs, demand for both new and existing homes fell last year and prices, which had been soaring at double-digit rates, have been stagnant. The National Association of Homebuilders reported this week that its index of builder confidence fell to an all-time low in October."

"'Builders are in a panic mode and are trying to catch up with a rapidly falling market,' said Mark Zandi, chief economist at Moody's Economy.com."

"Pulte Homes Inc., the third largest U.S. homebuilder, will hold a Halloween-themed 'Monster Sale' this weekend in an effort to clear inventory as the housing slump continues."

"The three-day sale in Pulte's 51 American markets will begin Friday, 12 days ahead of the popular, ghoul-themed holiday."

"'It's a weak market and you've got to be more aggressive to attract people,' David Goldberg, an analyst at UBS Investment Research, said in an interview."

"The five largest homebuilders have written down more than $4.7 billion in the value of real estate and other expenses in the most recent quarter, as customers cancel orders and homes sit unsold in the worst housing market in 16 years."

"'If you've been dreaming about the comfort of a new home but having nightmares about making the move, why not treat yourself to monstrous savings during The Monster Sale,' reads an advertisement on the firm's website."

"Pulte is offering free appliances and landscaping and 5.875 per cent, 30-year fixed financing, with no closing costs to buyers at its Bailey Commons development in Phoenix, Ariz. Its website shows three houses for sale there, with prices starting at $164,880."

"In Tampa, Fla., Pulte is reducing prices by $5,000 to $20,000. In Raleigh, N.C., the company is offering $10,000 to $40,000 off homes that close in 2007 and $5,000 to $20,000 off homes that close next year."